In an “applicable asset acquisition,” the sale of the assets of a business may be subject to certain allocation and reporting requirements for federal income tax purposes. It’s essential for the seller and purchaser to be aware of these requirements.
What’s an Applicable Asset Acquisition?
An “applicable asset acquisition” is any transfer of assets which constitute a trade or business and with respect to which the transferee’s basis in such assets is determined wholly by reference to the consideration paid for such assets.[1] A group of assets is a trade or business if its character is such that goodwill or going concern value could under any circumstances attach to those assets.[2]
Goodwill is the value of a trade or business attributable to the expectancy of continued customer patronage, which may be due to the name or reputation of a trade or business or any other factor.[3] Going concern value is the additional value that attaches to property because of its existence as an integral part of an ongoing business activity.[4] Going concern value includes the value attributable to the ability of a trade or business (or a part of a trade or business) to continue functioning or generating income without interruption notwithstanding a change in ownership.[5] It also includes the value that is attributable to the immediate use or availability of an acquired trade or business, such as the use of the revenues or net earnings that otherwise would not be received during any period if the acquired trade or business were not available or operational.[6]
The basis of an asset generally is its cost as adjusted for various items including depreciation or amortization.[7] Thus, when an asset is sold, its basis generally is the consideration paid for that asset.[8]
What Happens in an Applicable Asset Acquisition?
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